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Congress study cuts through IMF hype and hypocrisy In August 2000 the Managing Director of the IMF said that combating poverty "will inevitably be an arduous and often lengthy process". He was right! The US Congress's General Accounting Office notes that under IMF programmes it will take Niger 366 years - and not 15 as the Fund forecast - to achieve a per capita GNP of only $895. (The current annual per capita GNP of US citizens is $33,383.00). The report which is highly critical of the Fund's failure to allow poor countries to take ownership of their programmes, was commissioned by The Chairman of the Senate Committee on Foreign Relations Senator Jesse Helms. Senator HelmsHeHeH asked the GAO [the United States General Accounting Office] to evaluate what changes the Fund had made to its lending program for its poorest members since it announced the Poverty Reduction and Growth Facility. Specifically (1) to analyze how this new programme is designed to be different from the previous (ESAF) programme; (2) to assess what has actually changed in recipient countries' programmes and (3)to evaluate whether the changes implemented in the new PRGF programme increase the likelihood of recipient countries graduating from (that is, no longer being eligible for,) concessional (or cheaper) borrowing in less than 15 years. In 1999 the IMF renamed its concessional lending program - the Enhanced Structural Adjustment Facility (ESAF) - as the Poverty Reduction and Growth Facility (PRGF). This rewording was because of pressure from Development Ministers in Europe, who in turn were under pressure from Jubilee 2000, to embrace a more proactive approach towards the reduction of poverty worldwide. The Congressional report reveals that in the last 25 years the IMF has not changed the way it lends to poor countries, despite its well publicised concern for poverty reduction and the involvement of civil society. There has been only a mere "shift in emphasis rather than a change in the fund's stated philosophy." Another anomaly that the report has discovered is that the IMF criteria for concessional borrowing are not, after all, so rigid. In 2000 China graduated from PRGF eligibility because it was considered creditworthy even if its per capita income was still below the IDA threshold. But Indonesia is treated differently. The report says that "Indonesia's per capita income has fallen substantially over the last several years, and Indonesia is now deemed eligible for IDA resources. However, according to IMF documents, Indonesia is not considered eligible for PRGF resources at this time." Countries that receive concessional lending from the IMF are those at the bottom of the Human Development classification, with high levels of child malnutrition, illiteracy and low access to safe water. In the PRGF the IMF stresses that debtor countries should "take ownership of their macroeconomic framework" and promote " civil society participation". The Congressional report notes that the first obstacle for debtor countries is their limited capacity to analyse and negotiate a good deal with creditors. Furthermore, they have to identify their "civil society", and this task is very arduous for countries lacking a "representative tradition." The efforts made by poor countries to build up a civil society in order to face and fight the IMF and World Bank's conditions on their loans, are usually vain. The GAO's report states that "the main vehicle to achieve the policy framework papers - has been generally developed by the staff of the IMF and not by the country themselves". According to an external evaluation of ESAF, the report continues, "the Fund brings uniform drafts (with spaces to be filled) from Washington, in which even matters of language and form are cast in colorless stone…the general yearning therefore was for the realisation of a potential that never was - a truly country-specific PFP [policy framework paper], agreed on the basis of a government-led consultation process". The reports also notes that "even if national ownership increases, given the need for poor countries to maintain macroeconomic stability, which is essential for economic growth and poverty reduction, the actual policies and targets within the macroeconomic framework are not likely to be altered substantially from the past." The IMF imposes conditions on its lending because it believes that these will bring macroeconomic stability necessary to create economic growth and to reduce poverty. However, the report notes that "the impact of the PRGF on countries' economic growth rates is unknown at this time." Despite this uncertainty about the impact of its policies on growth, the IMF has been able to predict that 32 countries currently following IMF programmes would reach the IDA threshold of $895 per capita GNP in 15 years; that is, their living standards will have improved so that they will no longer be eligible for concessional borrowing. GAO has analysed these predictions using forecasted growth rates given by Standard & Poor's unit DRI, and has found that "given that the current annual per capita income levels of these countries [32] is generally quite low (an average of $427), the average number of years required for these countries to reach the graduation threshold at their projected per-capita income growth rates is 59, with Niger requiring 366 years. The
real per capita GNP growth rates necessary to achieve the IMF's target in 15 years
is 6%. The average growth over the past 25 years has been a miserly -0.94%, and
Chad, for instance, had an average growth rate of about 0.17% over the past 15 years, and needs a growth rate of 9.48% in the next 15 years; Madagascar, had negative growth over this period -1.28%, but should have, according to the IMF, a 8.59% growth rate. This means that the IMF will miss the target completely, and in the case of Niger by about 341 years! The necessary growth rate of 6% is still modest compared to the rate of 7% that was called for by the IMF and the World Bank at the summit in Copenhagen in 1995, when the target to reduce poverty by the year 2015 was fixed. Considering the past trend in growth rates of these countries, the deduction is that the Copenhagen development targets were based on unrealistic assumptions about the growth rates of poor countries. GAO also analysed three countries - Albania, Benin and Honduras - which had a Fund programme, and were expected to have poverty reduction strategies ready for mid-2001. These countries were taken as a case study to see how they were affected by the changes in lending publicised by the IMF. The study shows "that in Albania structural performance criteria stayed roughly the same, while in Honduras the number of structural performace criteria has increased from 2 in 1999 to 5 in 2000. In Honduras there is no independent think-tank analysing macroeconomic issues, nor is there in Benin. In Benin budget expenditures for education and health in 2000-01 have increased by less than 0.5% of GDP, and adopting a privatisation strategy for the cotton sector is a condition for Benin to receive debt relief" When asked to comment the IMF said that the "GAO's report could have been more positive in its judgement. The Fund itself, the report says, "provided no evidence to support the assertion that changes are taking place or to identify countries where change is taking place." So, it is unlikely that the IMF will see " measurable progress in incorporating the new features of the concessional lending program by September 2001" as the IMF argued in September 2000. The study also raises a question mark on the possibility that "policies that are overly concerned with macroeconomic stability may turn out to be too austere, lowering economic growth from its optimal level and impeding progress on poverty reduction." According to IMF and World Bank documents, the report says, "there is a "substantial gray area" between those policies that may be considered too austere and those that cause macroeconomic instability." Is
this "gray area" responsible for the bleak future of the citizens of Niger who
will spend the next 366 years living in poverty? |
